Cafeteria costs are devouring K-12 budgets as more food providers leave districts in the lurch, forcing administrators to take drastic measures to keep students properly fed.
Some school districts are serving more finger foods because they can’t always buy plastic utensils. One is using a federal voucher to subsidize the cheese on its pizzas. Another is agonizing over whether to cut staff to offset its grocery bills.
The reason: Feeding U.S. schoolchildren doesn’t pay in this economy.
Food providers that many of the nation’s public school students rely on for meals are increasingly charging more than administrators can afford, representatives for hundreds of districts and their food-buying groups across the country told NBC News. Their longtime contractors — an array of manufacturers, distributors and suppliers — are passing on higher costs for everything from milk to aluminum foil, raising prices at short notice, missing deliveries or shifting their businesses away from the K-12 market.
As a result, many administrators are weighing which costs to cut as they face ever fewer options to buy ever pricier food. Next week, hundreds of school nutrition professionals are heading to Washington, D.C., as the School Nutrition Association, a national advocacy group, lobbies for more help controlling cafeteria costs.
While inflation is inching down, food prices at primary and secondary schools were up more than 300% in January from the year before, federal data shows. That figure reflects the expiration of pandemic-era aid to schools, but it also includes economywide pressures that have driven up food, energy, labor and delivery costs over the past year for businesses and consumers alike.
Anji Branch, the president of Idaho’s School Nutrition Association, said that “substitutions, cancellations, delays” represent “the new normal for us,” and she’s not alone.
The ‘force majeure’ flood
Paula De Lucca, the nutrition director for Wake County Public Schools in North Carolina, used to receive a “force majeure” letter from food contractors about once a year on average.
But those notices — which warn of price hikes above a contractually agreed level due to factors outside a provider’s control — have already flagged increases for 200 of the roughly 700 products ordered by the district’s buying group for the current school year, she said. Force majeure price increases can come from food distributors or manufacturers of any size, passing along higher costs for everything from labor or fuel to raw materials that they incur from their own suppliers.
The North Carolina Procurement Alliance — the state-run consortium that represents Wake County and most other North Carolina districts, covering more than 1 million students — said the recent price hikes comprise 52 bid items from the group’s distributors and 148 from manufacturers it buys from directly.
“We’re very seriously concerned about next year and the coming years,” De Lucca said, adding that the district has little choice but to pay the higher prices. Since her district is reluctant to make sacrifices to students’ meals and has recently raised employees’ pay, painful staffing decisions are now on the table.
“We don’t want to reduce our quality. So the only other option, obviously, is positions that you have,” she said.
Leann Seelman, a consultant at the NCPA, said her hopes for price relief have dimmed.
“We met with manufacturers a couple weeks ago,” she said late last month, “and they say they are still seeing issues in the marketplace.”
Other school nutrition directors are also reporting more frequent price hikes this year, many of them steeper than usual. Officials said the increases can range from a few percentage points above an item’s contracted price to 150% or more, affecting everything from chicken and yogurt to plasticware.
One force majeure letter seen by NBC News warned of a nearly 300% increase in liquid whole eggs — used in dishes like omelets and French toast — last July. Another letter announced increases of between 12% and 20% for foil-based items this fall, including aluminum wrap and serving pans.
Unlike restaurants and grocers, schools have little ability to pass along higher costs to those they serve. Many families already can’t afford school lunch. Households can apply for free or reduced-price meals, but not all meet the narrow income guidelines to qualify, which often leaves districts picking up the tab.
In a November survey conducted by the School Nutrition Association, nearly 850 of about 1,200 school systems reported shouldering meal debt, with the median of $5,164 per district up from $3,400 pre-pandemic. While some meal debt among the nation’s more than 13,000 school districts can be rolled over into the next year or written off as an operating expense, much of it will need to be paid off by the end of this school year, administrators and policy experts said.
Many food expenses for schools participating in the National School Lunch Program have long been subsidized by reimbursements from the U.S. Agriculture Department. Extra lifelines in recent years, such as a universal free meal program that expired at the end of last school year, and other pandemic aid, also helped cover costs temporarily.
But those are winding down, and Kathryn Fenner, who follows the K-12 market for the food-service consultancy Technomic, says current USDA reimbursement rates lag well behind schools’ needs.
“Food service operators are more challenged than they’ve ever been, K-12 in particular,” Fenner said. “It’s never been an easy job, but the pandemic made it that much harder.”
A USDA spokesperson said the agency encourages schools to apply for “community eligibility,” which means that if enough students apply and qualify for free or reduced meals, their whole district can be provided with free breakfast and lunch.
Reimbursement rates are adjusted annually to reflect the consumer price index’s “food away from home” category, which was up 8.2% this January from the year before. Raising reimbursement rates beyond the CPI adjustments would require Congress to expand the USDA’s funding powers, the spokesperson said.
A ‘less strategic’ market
The food service industry is dominated by a handful of large companies. Just three — Sysco, Performance Food Group and US Foods — captured nearly 40% of all distributor sales as of 2021, up from about 30% in 2018, according to Technomic.
Among the 50 biggest broadline distributors that supply large quantities of food to institutions from hospitals and catering groups to universities and public schools, those same three companies accounted for 67% of sales, Technomic found. The food service industry hasn’t grown much in the last few years largely because of the pandemic, but Sysco, Performance and US Foods have increased their collective market share in part through acquisitions, Fenner said.
For major food service companies, the K-12 market is chump change.
Faced with strict regulations around what they can serve, budgets tied to taxpayer funding and limited scale (even a consortium of dozens of districts lacks the buying power of a massive hospital system), K-12 schools aren’t the most lucrative customers. According to Datassential, a food and beverage research company, they account for just 4% of operator purchasing.
In May 2021, US Foods CEO Pietro Satriano told investors that K-12 is among the “segments which are less strategic to us.” On a February 2022 earnings call, CFO Dirk Locascio said that executives “expect to grow below the market there” and cited “added complexity” among the reasons K-12 customers “tend to not be as profitable.”
US Foods didn’t comment on its strategic outlook for the school market. “We support many K-12 accounts across the United States and take our commitments seriously,” a spokesperson said. “As with all customers, we may evaluate new and existing relationships based on the strategic needs of the market.”
Sysco didn’t comment on its K-12 business. Performance Food Group didn’t respond to requests for comment.
Many school officials say there have never been so few food providers that want their business. Some administrators say contractors have been dropping service to entire regions. Others are getting only one bid when they used to get a handful. A few are receiving none at all.
In July 2021, Florida’s largest buying group, representing over 600 schools, was alerted that US Foods was terminating a contract set to last through 2024 in just 90 days, ending a nearly 20-year relationship.
After scrambling for new bidders, the Power Buying Group entered an emergency contract with Sysco, featuring delivery fees 250% as high as it paid previously, said Rae Hollenbeck, the group’s executive director. Federal pandemic aid helped cover those costs, but that funding and the emergency contract expire at the end of this school year.
“We’re biting our fingernails hoping that we’ll get a distributor that will service our group,” Hollenbeck said.
A US Foods spokesperson said, “In the event we do decide to exit a customer relationship, we honor our contractual obligations and work diligently to ensure a smooth transition for the customer.” Sysco didn’t respond to requests for comment on the emergency contract.
In Pennsylvania, a buying group representing 60 school districts said it received a bid from US Foods for the current school year with prices up 35% from its prior contract. Over the past year, the group has received hundreds of price hike notices citing inflation, said Kristan Delle, the food services director at Upper Dublin School District and a leader of the buying group.
“In our role as a food service distributor, we have been working closely with our customers to help navigate increased food costs by offering cost-appropriate alternatives,” a US Foods spokesperson said, adding, “We take our contractual obligations very seriously.”
Branch, of the Idaho school nutrition group, said she’s spent hours hunting for off-bid sources or local suppliers that can meet USDA requirements. Several Idaho school systems are moving to six-month bid cycles because providers can’t secure prices for a full school year, she said. Many items Branch’s district agreed to buy last June have already become unavailable or prohibitively expensive, she said.
Schools also said their food contractors are getting less reliable. A nationwide truck driver shortage has contributed to inconsistent delivery times, with a few districts saying they now pay staff overtime to wait for food trucks late into the evening. Some deliveries never show up, officials said.
The problems have pushed some schools to ink deals with local grocery chains, whose prices tend to be higher.
Lori McCoy, director of food services at Colonial School District, which belongs to the same buying group as Delle, said she has been working with Giant Supermarkets to get food into her suburban Philadelphia cafeterias after US Foods’ deliveries became inconsistent.
Although many districts contract with specialty distributors and secondary suppliers, it’s less common for schools to rely on off-bid sources for their cafeterias. McCoy said it’s the first time she’s had to work with a supplementary source to get food on the fly.
Since many regional grocers don’t carry some of the USDA-approved products schools are required to serve, like certain whole-grain foods, McCoy said she’s often stuck with whatever she can get. The USDA has loosened some rules in light of supply chain issues and inflation, but many of those criteria are expected to come back into force next school year and more guidelines have been proposed.
“I guess I’m not supposed to say I serve [unapproved ingredients] anyway, but if it comes down to that and not feeding our kids, I mean, we have to do something,” McCoy said. “We are trying everything we can to meet the regulation, but at this point there are challenges beyond our control that are making it really difficult for us to do so.”
US Foods said it works with customers “to offer alternative products to meet their immediate needs” in case of supply disruptions.
Filling the gap
Some schools have found creative, if often imperfect, solutions.
Lori Danella, the nutrition director at Lee’s Summit School District, says her district was one of very few in the Kansas City metro area that wasn’t dropped by their distributors in recent years.
She had to take chicken wings off the menu after prices tripled earlier this school year, but she’s managed to keep serving “Big Daddy’s Pizza.” Its survival is thanks to the federal Foods in Schools program — which districts can use to order USDA-purchased commodities in bulk to be sent to a processing company — that helps pay for the cheese on top of the popular Schwan’s brand pies.
It isn’t just food that’s gotten costlier and harder to source. Wake County School District bought silverware because it had trouble getting plastic utensils during the pandemic, De Lucca said. While that shortage has eased, it has meant short-staffed cafeteria workers sometimes hand-washing “a thousand forks a day” because they don’t have a dishwasher, she said.
Some districts have begun serving more finger foods to avoid that problem, Technomic’s Fenner said.
In Indianapolis, Adelante Schools chose to start from scratch after suffering supply chain issues and price hikes. Managing Director of Operations Jordan Habayeb said he was worried about narrow, repetitive menus in his K-8 cafeterias after affordable USDA-approved options dwindled. He said Adelante is partnering next year with an area nonprofit to source fresh foods from local vendors. The idea, he said, will likely save money, too.
Longer-term fixes to reign in cafeteria costs would likely require broad policy action and more federal funding, said Crystal FitzSimons of the Food Research and Action Center, an advocacy group. Raising USDA reimbursement rates for the upcoming school year and reinstating universal free lunch as a permanent program would help, she said. Both are moves that the SNA also supports.
“It’s taken longer than I think anybody had expected for the school nutrition programs to recover,” FitzSimons said, adding that the process is far from over. “They still have not recovered from the impact of the pandemic.”
